Ma Rules Out Driving Down Taiwan Dollar as Growth Slows

July 25 (Bloomberg) -- Taiwan President Ma Ying-jeou ruled
out driving down the Taiwan dollar to boost exports following
the currency’s rally against the yen and said the government
still aims for growth of at least 2 percent this year.

A decline in the Taiwan dollar would push up prices of
imported commodities and hurt the livelihood of the island’s
people, Ma said in an interview at his presidential office in
Taipei today. Japan, which competes with the island as an
exporter of electronics, was able to depreciate its currency
because of entrenched deflation, he said.

The weakening global recovery led Taiwan in May to cut its
official forecast for gross domestic product growth this year to
2.4 percent from 3.59 percent. Exporters including Taiwan
Semiconductor Manufacturing Co. have called for a drop in the
local currency, which has rallied 22 percent against the yen in
the past 12 months as Japanese Prime Minister Shinzo Abe moved
to revive growth. Orders for Taiwan exports, which account for
about 70 percent of the economy, fell for a fifth straight month
in June.

“We would like an adequate depreciation in the Taiwan
dollar to keep our competitive edge,” Tsai Lien-sheng,
secretary general of the Chinese National Federation of
Industries, which represents more than 100,000 manufacturers on
the island, said by phone today. “The government needs to look
at the currency moves of our major competitors, including South
Korea and Japan.”

Ma said the economy can continue to expand without risking
inflationary pressures from a weaker currency. “We have a more
balanced policy,” he said. “We think a stable currency will
affect our imports and exports in a more balanced way.”

Policy Working

So far, the policy is working, according to Grace Ng, an
economist with JPMorgan Chase & Co. in Hong Kong.

“I don’t see a significant negative impact on the real
economy in terms of competitiveness because what the central
bank is doing is to keep a stable effective exchange rate,” she
said. “In Asia, you can see Taiwan’s inflation picture is
relatively well contained.”

Ma said the performance of the island’s trading partners
will help decide economic growth. “We want to grow at least 2
percent and hope for faster than 2 percent,” he said. “We need
to see how quickly Europe and the U.S. recover.”

U.S. data indicated the world’s biggest economy may
experience an uneven recovery, with production climbing and
sales of existing homes unexpectedly falling in June. The Euro-area’s economy has contracted for six quarters in the meantime.

China Concern

China, the island’s largest trading partner, has forecast
growth to slow to about 7.5 percent in 2013, the weakest pace in
23 years. Goods bound for China and Hong Kong represented almost
40 percent of Taiwan’s exports last month.

“We can’t rely on China or the U.S. as in the past,” Ma
said. “We have actively built up new markets such as in
Southeast Asia so that we can allow our exports to maintain
their momentum.”

Taiwan signed its first free trade agreement with a
developed country, New Zealand, this month and has concluded
substantive talks with Singapore on a free trade pact that Ma
said will be signed “soon”. Neither country has diplomatic
ties with the island.

China, which claims sovereignty over Taiwan and has
diplomatic ties to New Zealand, didn’t raise objections over the
trade deal, signaling other nations could reach trade deals with
Taiwan without antagonizing the mainland. Ma said he plans more
deals.

“We are seriously lagging relative to our trade
competitors, including South Korea, Singapore, and Japan,” Ma
said. “We must act fast to catch up with the regional trend.”